Tribunals now have the power to adjust protective awards where the Code of Practice on Dismissal and Re-engagement (the Code) is not followed.
On 20 January 2025, amendments to the Trade Union and Labour Relations (Consolidation Act) 1992 (TULRCA) took effect so that a failure to inform and consult staff during collective redundancies in a fire and rehire situation may result in an uplift to any resulting protective awards.
Employment Tribunals can now increase or reduce protective awards by up to 25% if a party has unreasonably failed to comply with the Code or another applicable code of practice.
What is "fire and rehire"?
Generally speaking, fire and rehire occurs when an employer terminates the contracts of its staff and offers to re-engage them on new terms.
Dismissals using this practice are treated as redundancies under TULRCA and therefore where there are 20 or more staff affected, obligations relating to collective redundancy consultation apply.
What is the Code?
We addressed the Code in our article published in July 2024, which can be found here: Statutory Code of Practice on Dismissal and Re-engagement in force from 18 July 2024.
The Code was introduced by the previous Government and came into force on 18 July 2024. Employers should acquaint themselves with the Code if they are not already familiar with its contents.
When is a failure to comply with the Code unreasonable?
What will amount to an "unreasonable" failure is not defined in the Code.
Employment Tribunals will consider the context and circumstances in each case when reaching a decision.
Future case law on this point will be needed to provide employers with a steer as to where the line is. In the meantime, employers would be well advised to document the rationale and reasons for their decision making in fire and rehire situations, along with the stages of the consultation process to assist in the defence of any uplift claims.
What can be uplifted / reduced?
Since the Code came into force on 18 July 2024, awards of compensation could be uplifted or reduced by up to 25% in relevant claims, for example, unfair dismissal.
However, the legislative amendments needed to make the uplift / reduction applicable to protective awards did not gain House of Lords' approval before the 2024 general election.
This has been remedied with effect from 20 January 2025, so that if more than 20 employees have been dismissed and there is a successful claim for a protective award, this award can also be uplifted or reduced by up to 25%.
To put this into context, the current maximum protective award is 90 days' pay per employee.
Timing of claims
Employers should be aware that Employment Tribunals can apply an uplift or reduction in any pending protective award claims to which the Code applies, not just new protective award claims brought since 20 January 2025.
Claims where the prospect of fire and rehire was raised with employees or their representatives before the Code came into force on 18 July 2024 will not however be subject to the uplift / reduction.
Further reform
In its Factsheet, Fire and Rehire in the Employment Rights Bill which can be accessed here: Fire and rehire the Labour Government summarised its proposals to address fire and re-hire practices.
In short, Labour is seeking to restrict employers' ability to use fire and rehire by amending the law on unfair dismissal, so that fire and rehire dismissals will be treated as automatically unfair unless employers can show:
- evidence of financial difficulties that were affecting, or were likely to affect, their viability;
- the changes were to eliminate, prevent, significantly reduce or significantly mitigate the effects of those financial difficulties; and
- the need to make the change in contractual terms was unavoidable.
Other proposed changes include:
- increasing the protective award that Employment Tribunals can award from 90 to 180 days, or to remove the cap on these awards entirely; and
- introducing a right for employees to apply for interim relief where either they have a claim for the protective award, or they have a claim for unfair dismissal in a fire and rehire situation.
A consultation on these particular proposals: Consultation on strengthening remedies against abuse of rules on collective redundancy and fire and rehire closed on 2 December 2024 and a response is anticipated at some point this year.
Employers should seek legal advice at an early stage if planning to make changes to employment contracts where there is a possibility that agreement will not be reached on the changes with employees or their representatives. Such consultation processes can require significant planning and can be time-consuming, sensitive and complex. In addition to the legal and financial risks of claims, such processes carry considerable risks to reputation and workplace relations.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
